Keravnos Optimistic About Tax Reform Plans

Government Officials Express Optimism About Tax Reforms

Finance Minister Makis Keravnos expressed confidence in the government’s strategy to implement significant tax reforms following a meeting with political party leaders. During a two-and-a-half-hour discussion, he emphasized the importance of collaboration and consensus among all stakeholders.

“We can all move together and implement the tax reform,” Keravnos stated after the meeting. He highlighted the need for a “convergence of opinions from all social partners and from the political parties of this place.” According to him, the discussions yielded “very good opinions, positive views, and approaches” that align with the government’s intentions while also contributing new insights.

Keravnos reiterated his commitment to continuing the dialogue but stressed the necessity of adhering to the right timelines and maintaining a rapid pace to ensure the tax reform is implemented by January 1 next year. He believes the reform will bring relief to taxpayers, workers, small and medium-sized businesses, and strengthen the competitiveness and resilience of the Cypriot economy.

When asked about the feasibility of the January 1 deadline, Keravnos confirmed that it reflects the collective effort and shared goal of achieving this milestone. He acknowledged that some aspects of the government's plans have evolved since the initial announcement in February, particularly regarding the powers granted to the tax commissioner.

Stakeholders raised concerns that the tax commissioner could potentially act arbitrarily. Keravnos clarified that the government never intended such provisions and assured that the commissioner’s powers will be clearly defined and transparently recorded.

The government has set its sights on implementing the tax reforms at the start of next year. President Nikos Christodoulides outlined these plans in February, emphasizing their importance for the country's economic future. Key components of the proposed reforms include increasing the tax-free income threshold to €20,500 per year, up from the current level of €19,500, which has remained unchanged since Cyprus adopted the euro in 2008.

Additionally, the top income tax rate of 35% will apply only to those earning more than €80,000 annually, an increase from the current threshold of €60,001. Christodoulides promised that these reforms would bolster the middle class, which he described as the “foundation of every prosperous and democratic society.”

One of the most notable aspects of the plan is the increase in individuals' tax-free incomes. The proposal also includes a series of significant tax deductions that consider the needs of households and family composition. For instance, parents will receive an extra €1,000 for each dependent they have. Additionally, parents purchasing their first home or renting will get €1,500 in tax-free income, and €1,000 for making a “green investment.”

Single parents will benefit from double the tax-free amount. Christodoulides also pledged support for young people through tax relief incentives for parents, aiming to encourage the employment of women and address long-term structural issues.

In addition to these changes, the corporation tax rate will rise from 12.5% to 15%, aligning Cyprus with European Union requirements. New measures to combat tax evasion are also being considered, including allowing authorities to seal off businesses that repeatedly fail to issue receipts or invoices, criminalizing the non-payment of income tax, and increasing fines for tax offenders.